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Are there tax disadvantages to buying a (second) house before selling your first house?

I own a house in Phoenix, but I want to buy a different house and have the money in full, no mtg needed. Are there tax disadvantages to buying a (second) house before selling your first house? Also, I may rent my existing house as a second option.
  • January 29 - Phoenix
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Answers (5)

Best Answer

There are no tax advantages to buying a second home before you sell the first home. In fact depending on the timing, it may be a disadvantage. Selling your primary home allows you to take an exemption from capital gains while selling a second home does not. So if you make your current home your second home you may lose all or part of your exemption it all depends on how long between purchase and sale.

However, there are very good tax advantages for owning and renting an investment property. Of course, a lot depends on other factors within your financial situation. The best advice is to sit down with a qualified tax professional and discuss your plans and how it pertains to your situation. You will be able to make a more educated decision. By the way, I will be happy to help you find a great replacement home. Just give me a jingle to discuss your plans.

  • January 29
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You can rent or sell your current home. Unfortunately, as a real estate broker, I cannot give tax advice. You can speak with an accountant about your specific scenario so that you have a recommendation from a tax professional. Have you decided on the agent that will be helping you with your homes?
  • January 30
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For home purchases after 1997 you would still be eligible for the capital gains exemption if you sell the house within three years of making another home your primary residence (the use test being you lived in the home as your primary residence 2 of the last 5 years).  There are tax advantages to having a rental property, but they are complicated and best discussed with a CPA that has real estate experience. 
  • January 30
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Although I'm not an accountant I can't think of any real advantage.  There could be some disadvantage depending on if you have a gain in your current home and how long you have owned it.  If you sell a primary residence you can be exempt for some capital gain, but if it is not a primary residence when it is sold the exemption may not apply. 

  • January 30
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Profile picture for gator70
Minimal, a bit more mortgage interest and property tax to deduct on your 1040. 
  • January 29
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